Realtors await federal response

Any number of homes in the Santa Clarita Valley could be eligible for a short-sale — where a lender agrees to sell a home for less than what is owed. These transactions are better for the market than foreclosures which drive prices down further and often ruin a seller’s credit.

Santa Clarita Realtors are encouraged by recent efforts by lawmakers to slow the foreclosure process, but they say more help for homeowners is needed.

Mortgage giants Fannie Mae and Freddie Mac have been ordered by the Federal Housing Finance Agency to review and respond to short-sale requests within 30 calendar days from the receipt of a short-sale offer. A final response is due within 60 days.

Short sales occur when a bank or lender agree to allow a homeowner to sell their home for less than what is owed on the home.

If homeowners do not hear back on an offer within 30 days, the lender of a Fannie Mae and Freddie Mac loan must send weekly updates and identify how any problems may be resolved.

If lenders do not comply, they could face monetary or other penalties. The new rules would take effect in June.

Federal guidelines

“The new FHFA guidelines make total sense and are long overdue,” said Alex Woltman, co-owner of Intero Real Estate Services. “There is no reason that it should take longer than 30 days to give a response or 60 days to issue a decision.”

But local Realtors say the mandate falls short by not including traditional FHA and VA loans, in which short-sale negotiations can drag on for up to a year resulting in a home going into foreclosure before an agreement is ever reached.

As for complying with the new response-time mandates, Realtors aren’t sure how the directive will translate into reality.

“It will remain to be seen how monetary penalties for noncompliance will really affect the banks and servicers,” said Katherine Salisbury with Triple D Realty. “If they adhere to giving you weekly updates when there’s no approval at the 60th business day, is that considered compliance and no monetary penalty imposed?”

Banks will need to hire more resources to handle the complaints and put systems in place to enforce penalties, said Cherrie Brown with Keller Williams VP Properties.

Timeframes imposed on another government program, the Home Affordable Foreclosure Alternatives program, or HAFA, hasn’t been totally effective, Brown said.

“In many cases, we find the banks are not actually complying due to the amount of work overflow they have,” she said.

Assembly Bill 1745 will prohibit lenders from foreclosing on a home when they have previously agreed to a short-sale.

“Every agent knows of someone that the bank foreclosed on while they were in the middle of a short-sale negotiation,” Woltman said. “This bill will put a stop to that once and for all.”

The problem is so acute, local Realtors complain of nightmare cases where they are in the middle of closing a lender-approved short-sale when the lender forecloses on the home they approved for short-sale.

Bank departments have no idea what the other department is doing; the left hand doesn’t know what the right hand is doing, Salisbury said.

The situation is so bad, said Connor MacIvor with RE/MAX of Santa Clarita that he has had banks foreclose on homes while he is in the middle of a short-sale the bank approved.

At times, MacIvor allows his clients to listen in on calls with lenders. Doing so lets the client hear a lender tell the Realtor they’ve sent a property to auction — even though the lender had previously approved the home for a short-sale, loan documents for the sale have been signed and the property is in escrow.

“It is hard to explain to a seller that the bank did what they did and there is nothing they can do about it,” MacIvor said. “It is not uncommon to have a short sale that is in process, in line for approval, go to auction.”

Compounding the problem, Brown said, is trying to rescue a home sent to foreclosure when the property is in escrow and the buyer is ready to close.

The banks want to force the buyer to buy more quickly, and seem to have “no idea that closing is not based on a hand shake,” she said. There are mandatory disclosure time frames, which is why a standard escrow period is 30 to 45 days.

Brown recently handled a short-sale and opened escrow only to learn the bank also set a foreclosure sale date on the same property, to take place three weeks into the escrow period.

The buyer’s FHA loan required a 30- to 45-day escrow and the bank refused to postpone the sale date, she said.

Hours of phone calls later, and with much fighting, Brown eventually succeeded at getting the bank to postpone the foreclosure sale date.

“Since they are a bank, most would think they understand the funding process to close a loan,” Brown said.

Fixing the process for a short sale helps restore the real estate market, local experts said. Foreclosures often result in homes selling for thousands of dollars less than the original short-sale offer.

“Any time you can have a law or mandate in place to streamline the short sale process, it’s a step in the right direction and a move towards getting the market healthy again,” Salisbury said. “It’s not a cure-all, but it’s a positive start.jadkins@the-signal.com661-287-5599